## Estimation: Which Technique To Use

In our white papers and courses we teach a variety of estimation techniques for use in project management.  There are many people managing projects who do their estimation “on a wing and a prayer.” In other words, they make their best guess without any supporting data. None of the best practice estimation techniques is perfect. But at least they let you show the client, the project sponsor or your boss where the duration and cost estimates come from.

Our articles cover a wide range of estimation techniques including
analogous, parametric, order of magnitude, bottom-up and three-point estimating.  Once you have learned these techniques, you must decide which one to use on your next project.  Each of theses techniques requires specific data and specific mathematical and statistical procedures. Let’s go through each of them. Keep in mind that you can use different estimation techniques on different sections of your project.

Analogous Estimation Using Comparables

Analogous estimation has many advantages. It is based on historical data from previous projects your organization has done. The best organizations make money on their projects and meet their client’s expectations. And they keep historical data so they can use analogous estimation on future projects. Here’s an example. I was a partner with the fourth largest professional firm in the world.  One day I got a phone call from a new client who wanted an information system developed for his multi-state business.  The business was a sod farm that grew grass which landscapers installed for new homes and offices.  The only thing I knew about sod was that you planted the green side facing up.  Fortunately, our worldwide organization had an enormous archive of project plans, schedules and budgets for every project we’d done for the last several decades. Despite my ignorance of the industry, I searched the archives and found five comparable information systems projects the firm had done for sod farms.

After a few hours of study, I was able to have an intelligent conversation with the client. Several weeks later, I produced a proposal with cost and duration estimates that were based on the five comparable projects we had done. There is no excuse for any organization not to have project archives.   As long as the PMs are doing a professional job of managing the planned and actual project work, the data for analogous estimation exists They just need to save it at the end of every project.  If your organization has no archives, you need to start it now. Your estimates on similar projects will be better and more accurate in just a few months.

Parametric Estimation from Published Rates

Certain types of projects have published rates for specific tasks that project managers can purchase.  As an example, there are a number of companies in the construction industry who publish massive volumes on how many hours of work it takes to paint a 10 x 12 foot wall with one coat of latex paint.  These rates are widely used by smaller residential and commercial construction companies and subcontractors. Smaller companies can use these tables to calculate estimates based on the average data regarding how long specific tasks take.  By factoring in local hourly rates, they can estimate the cost of painting a 10 x 12 foot wall. People have tried to develop rates for information systems programming. However, they’re not as widely accepted as the construction industry rates.

Order of Magnitude Estimation to Reflect Risks

The most difficult estimate the project manager has to produce comes at the very beginning of the project during the initiation phase.  Executives want to know how much this new project will cost and how long it will take. However, the project manager may not have an approved scope statement. They may not even have much information about the project when they’re first asked these questions.  But if the project manager makes a wild guess about cost and duration at this point, the executives will carve it in stone. They’ll hold the project manager accountable no matter how many hedges the PM gives.  This is when and why the project manager should use order of magnitude estimation. Here is what they should say: “I’m 90% certain that the project can be completed between 50 and 95 days. I’m also 90% certain that the project will cost between \$75,000 and \$100,000.”

Executives don’t like order of magnitude estimation because they want two numbers; the cost and duration. They don’t want probabilities or ranges.  At this point in time, however, the project manager knows very little about what the project will entail.  So giving executives anything more specific than ranges and percentages is suicidal.  Some executives are surprised when they receive order of magnitude estimates. They unrealistically assume the project manager could consult a reference book somewhere and come up with specific numbers for their project.

The best that a project manager can do at this point in the project is to explain that the level of certainty will improve as planning proceeds  That kind of statement usually doesn’t do much good with executives but it’s the truth.

Bottom-up Estimation by the Project Team Members

Bottom-up estimation is done when the sponsor and project manager’s planning process has produced a work breakdown structure and assigned a project team. Letting team members make the estimates sounds very good. Also, it is a good idea to use the expertise of your team members in creating estimates. Enthusiasm in bottom-up estimating is usually high because team members enjoy being part of the process. Unfortunately, bottom-up estimating often leads to team members padding their estimates. They want to protect themselves from being blamed if the project is late and/or over-budget. Unfortunately, morale-building is lost and team members feel betrayed if the project manager slashes their bottom-up estimates to reduce the cost and duration to meet the project sponsor’s goals.

3-Point Estimation with Project Team Member Input

3-point estimation was developed by NASA for the space program. It’s a good choice when a project manager has unique, “never done before” project tasks.  In situations like those NASA faced on the moon landing, the other estimation methods wouldn’t work because there was no data from previous projects. In those circumstances, the project manager asks the team members for multiple estimates for each task. This allows them to consider the impact of good breaks and bad breaks.  Because the team members have a chance to assess the impact of good and bad breaks on their work, they aren’t as likely to pad their estimates.  3-point estimates also give the project manager statistical data on the probability of different durations and costs. Some sponsors are able to make good use of that data. Others think it is horse hockey.

Conclusion

There are lots of estimation choices and skilled project managers may make use of several techniques to develop the best estimation data for their projects.

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## Project Management Methodology – 3 Tiers to Fit Project Size & Scope

A project management methodology is the glue that binds all the organization’s project management processes and techniques. It is a process that helps everyone understand their role and obligations. Without a methodology you can’t exercise control over the portfolio of projects to ensure all of them produce business value and don’t waste financial and human resources. The project management methodology also gives upper management tools to ensure that the organization is doing the right projects in the order of their priority. But project management methodologies often have a bad reputation because of the way organizations implement them.

There are many decisions to be made in implementing a project management methodology. Too often organizations get carried away with implementing advanced project management techniques and methodologies. As an example, the implementers think it’s necessary to apply every detail in the Project Management Body of Knowledge (PMBOK)® from the Project Management Institute (PMI)® to every project.  But when the project management methodology is too complicated, has too much paperwork and too many meetings, people don’t follow it.  The methodo
logy has to make it easier for project managers, team members and sponsors to do a good job.  That’s why organizations need a project management methodology that is scalable to fit the size and complexity of each project.   AdPM Project Methodology

When organizations try to apply a complex methodology to all their projects, they overload smaller projects
with pointless paperwork. This paperwork jungle bogs down project managers and their teams. The extra paperwork, procedures and meetings take so much time that the project managers don’t do the paperwork.  Or they submit the same forms from an earlier project with just a couple of words changed.  This results in the organizations inability to prioritize its projects. And without priorities, it can’t allocate resources wisely.  It also can’t keep track of all the projects and their current status. In other words, there is no organizational project process.

Another result of this overly complex approach is that the organization can’t control the initiation of new projects. People don’t want to do all the paperwork to get a small project approved. So there are a lot of underground projects that are called something else, like “initiatives.” And there are other people who simply start new projects and ignore the organizational approval process. The result is that there is no control over project initiation and a lot of resources are wasted.

### Project Management Methodology: Scalable for Three Tiers

The scalable project management methodology is the way you can solve all these problems. It recognizes that small projects need just a small amount of the project management process.  As the projects increase in size, you will add tools and techniques to increase control. A scalable project methodology actually saves project managers time so they will comply with the process. That will produce better data you can use to allocate resources to the right projects. How Project Methodology Evolves

A scalable project management methodology can be tailored to meet the needs of each project; small, medium and large. That is the formula for solid control and success across the organization’s entire portfolio of projects. Let’s look at the three levels of our scalable project management methodology.

#### Project Management Methodology: Tier #1 Projects

The first level or tier of our scalable project management methodology covers about 60% of the projects in most organizations. There are  usually less that 10 team members and they, plus the project manager, all work in the same department or functional area. They report to the same boss who is the project sponsor. On these small projects, the scope statement and requirements shouldn’t be complicated. These elements make up the Broadbrush Plan. The project manager documents the business value the sponsor wants (the project scope) and the major constraints, like time and cost.  Most importantly, the Broadbrush Plan lets the project manager break down the project scope into assignments for the team members. These assignments include clear performance expectations. They allow the project manager and the team members to make accurate estimates of work and duration for the schedule.  They use the Broadbrush Plan and the estimates to develop a dynamic schedule based on the resources available.

Getting weekly status reports from the team members lets the project manager spot problems early when they can be fixed. They’ll be able to keep the project schedule updated in 10 minutes a week using project scheduling software.  The Tier #1 methodology meets the organization’s requirements for setting priorities and allocating resources. It does have limitations, however. As the scope of the projects and the size of the teams increase, the project manager must use the next tier in the project management methodology.

#### Project Management Methodology: Tier #2

Projects are a little larger in the second tier of our project management methodology. The team size usually ranges from 10 – 15 people and the project manager needs to borrow resources from different functional areas. Instead of a single sponsor, there are multiple sponsors/stakeholders the project manager must manage and satisfy. The project manager must use more sophisticated techniques to define the scope and  gather the requirements. He/she needs to focus on each business-relevant outcome and define network of achievements that lead to it.  That will let the project manager control scope creep. Lean Project Management

In addition to borrowing people from multiple departments, the project manager may be hiring contractors.  That makes the authority and management issues trickier. These projects involve more dollars and hours than Tier #1 so the project manager will use more elaborate estimating processes for work, duration and cost. The scheduling is more complex so they use the software’s optimization tools to ensure they’re using their resources efficiently and will finish as early as possible. The project manager also needs to develop high levels of team member commitment to the project’s time frames and deliverables.  Gaining that commitment is more difficult when the team members are borrowed from other areas and the project manager isn’t their “real” boss.  So they need to more actively manage the team culture.

Finally, Tier #2 projects have greater risk and higher stakes so the project manager needs to do risk management. They will probably limit their analysis to qualitative risk assessment which is an inexpensive technique.  They’ll focus their risk management on planning the risk responses and mitigation strategies to avoid the negative consequences.

#### Project Management Methodology: Tier #3

When the PM manages large strategic initiatives or major projects for clients they need to add Tier #3-level techniques to their project management methodology. The project manager will align the project with the organization’s strategy and go through an extensive scope and requirements process. They will do a detailed cost-benefit analysis and feasibility studies.  Then the project manager will break down the scope into measurable/verifiable outcomes that they”ll use as the basis for estimating the work and making team member assignments. He or she must make sure everyone knows exactly what business result the project is targeting and what is explicitly excluded from the project. They must define success in measurable terms and measure progress at each stage in the project’s lifecycle. Additionally, their risk analysis includes quantitative risk assessment which is more elaborate and includes statistical assessment of the risk’s probability and impact.

The project team must have an organization structure.  The project manager needs assignment and reward authorities for contractors and team members who are borrowed from other departments.  To create a high-performance team culture, everyone needs a shared objective and commitment. This requires the use of psychological motivation and commitment techniques far beyond a slogan and t-shirts.

### Summary: Project Management Methodology: Scaleable for Each Project

There are significant benefits to using a 3-tiered project management methodology for projects as they increase in size and complexity. You can expand and contract it to fit the size of your projects – small, medium and large.  It is wise to start with a simple methodology that actually saves the project manager’s time.  That’s how you get compliance and improve your organization’s project performance.

We offer books and courses that teach the tools and techniques for each level of our 3-tiered project management methodology. You can also earn a certificate in project management. You’ll work privately and individually with a expert project manager. You control the schedule and pace and have as many phone calls and live video conferences as you wish.  Take a look at the courses in your specialty.

At the beginning, when you and Dick talk to design your program and what you want to learn, you will select case studies that fit the kind of projects you want to manage. Chose you course and then select the which specialty case study from business, or marketing,  or construction, or healthcare, or consulting.  That way your case studies and project plans, schedules and presentations will fit your desired specialty.

## PMOs Project Management Offices Usually Fail

### Why PMOs – Project Management Offices – Fail

Project Management Offices (PMOs) often fail to improve their organization’s project success rate. Most frequently, the PMO either tries to impose pointless paperwork on all the project managers or it gets no executive support for changing the way projects are done in the organization. With either of those barriers, the project management office is doomed to fail.
We tell our clients who are considering a PMO “the pain of project failure must be severe for you to succeed with a project management office.” We’re trying to communicate that the sacrifices and restrictions that come from an effective PMO are painful. They are painful for executives who lose some of their decision-making prerogatives. They’re also painful for project managers whose work is more closely scrutinized. So to get the necessary support, the organization’s pain from project failure has to be much worse than the pain from establishing an effective project management office.  The organization is ripe to establish a PMO and make it work immediately after a large project failure that affects many parts of the organization.

### Why Creating an Effective PMO is Hard To Do

One of the things that makes a project management office or PMO so hard to get off the ground is that you must start by controlling the initiation of new projects. Uncontrolled initiation of projects is almost always the major problem in organizations that have poor success rates. That is defined as 70% of projects fail to deliver their scope on time and within budget. There are simply not enough resources to complete all the projects that are started. What we consistently find is that when managers and executives who want to launch a new project are required to explain and commit to the business benefits that will result, at least a quarter of the projects vanish.

### PMO Must Control Project Initiation

While this early success in controlling initiation looks good, it does not do away with the fact that the process will eventually restrict the ability of executives and managers to start any project they want. This is a bitter pill for many of them to swallow. However, it is absolutely necessary for the organization to identify the business benefit of all new projects.
First, the organization needs to eliminate the projects whose benefit is far less than their cost. Second, identifying the business benefit is also the basis for setting project priorities and that is the basis for the allocation of resources. Organizations that can’t properly allocate resources are unable to complete strategically significant projects. Why? Because those large strategic initiatives are starved for resources by all of the “puppy” projects that are launched in large litters every year.  Bringing the initiation of new projects under organizational control is exceedingly difficult. What we’re fighting here is the executives’ belief that because of their rank they can start a project whenever they wish. Their belief that they can start a project using their own subordinates whenever they wish is especially strong. But an effective PMO must control the initiation of projects across the entire organization. That is the only way to prevent wasting resources on projects that produce little benefit.  We often encounter situations where organizations have skipped controlling initiation because it is so difficult. The project office never succeeds when that step is avoided.

### PMO Must Set Project Priorities

The second most difficult thing in beginning a PMO is setting project priorities. What this means is that senior decision-makers have to sit down periodically and decide which projects get “first call” on the organization’s human and financial resources. These meetings can be very nasty in the beginning. Hostility and conflict between functional divisions of the company make compromise and bargaining difficult. However, after the executives have met three or four times, they all realize that it’s important to make bargains and set priorities. Specifically, the way to play this game is to have everybody around the table owe you because you’ve made a compromise so they can get one of their projects ranked highly. If each executive behaves that way this process becomes very smooth. All project-based organizations (organizations that make their living doing projects like consulting firms, accounting, engineering, architecture) are effective at allocating resources. With some coaching and counseling, most executive groups can make this prioritization a smooth running weekly process.

### PMO Must Allocate Resources

With projects having to pass a business value screen before they can be initiated and with project priorities set, the rest of the PMO is comparatively easy. The vast majority of organizations use the desktop PC to combine the project plans and allocate resources to them based on the priorities the executives have set. On a regular basis, all of the “project people” in the organization get a schedule of which project(s) they’re going to work on. As part of the allocation process, a ceiling is set on how many hours of project work a line manager or supervisor can be assigned. That’s because everyone wants them on their project teams. Emergencies certainly come up and there are crash projects that have to start immediately. The mechanism in place to allocate resources allows the PMO to make changes to the priorities and reallocate the resources when there is a project that must be staffed immediately.

### PMO Must Report and Solve Problems

The most publicly visible part of the PMO is turning out data on the status of projects. This requires the implementation of a reasonably standard project management methodology and regular reporting by team members. The key to early identification of problems is to have all team members report not only how many hours of work they completed on their task but also how many hours of work remain. With this “estimate to complete” data, the PMO can identify problems early and take corrective action while the problems are small.

### PMO Must Have a Project Management Methodology

Organizations need a scalable project management methodology. One size does not fit all. Small projects that are only going to take a couple of weeks don’t require the amount of documentation and planning that a six-month effort with a dozen people needs. Three levels of project methodology are sufficient for most of our client organizations.  They share some common elements even though the scale is different. First, they don’t have project “to do” lists. Project planning is more effective and efficient when the plan is based on deliverables. Team members have a deliverable that is clearly described and they are held accountable for producing it. This is much better than trying to tell them everything they have to do. The only exception to this approach is for a brand-new employee or trainee who obviously needs much smaller assignments so they can learn their job. But if all projects are planned with a consistent methodology, the initiation of new projects, the setting of priorities, the allocation of resources and the tracking of problems can all be done smoothly and effectively.
Learn how to effectively manage multiple projects and set up a PMO in our Managing Multiple Projects course.

## Enterprise Project Management

When we talk about enterprise project management, we’re talking about the processes organizations use to initiate, plan, monitor and control, track and close projects. We also include processes to prioritize projects and allocate resources to them. Quite simply, enterprise project management is an organization’s way of doing projects. At a minimum, these processes should include:

1.) How the organization initiates projects

2.) What criteria each project needs to meet to be approved

3.) Assignment of a priority for using organizational resources.

That priority allows the important strategic projects to get first claim on the organization’s resources. Projects with a lower priority have to wait until the high priority projects have the resources they need. The organization should also have processes that project managers and sponsors follow as they plan, schedule and track their projects. That gives the organization’s enterprise project management consistent language, plans and reports. It allows everyone to work together more effectively. Evolution of Project Management in Organizations

A consistent approach produces significant benefits across all projects in terms of people understanding the role of the team member, sponsor, stakeholder and project manager. The role each of them plays is standard in terms of the decisions they make and the accountabilities they have on the project. Those consistent roles and processes allow for executives to become accustomed to the format of a project plan and a proposed schedule. That allows them to be more efficient and exacting in their review of projects.  This doesn’t mean the organization does every project exactly the same way. Most organizations have an enterprise project management protocol that differentiates between projects based on their size, scale and strategic significance. So in most enterprise project management protocols, small projects do not need as much paperwork and documentation as larger projects.

### Enterprise Project Management Protocol

The enterprise project management may have a basic protocol for small projects. The project plan may be a short document with fewer than six elements such as: scope, requirements, estimates, resources, schedule and optimization. They include little, if any, risk management and the project has no additional quality processes beyond what is standard in the organization. Status reporting is very straightforward, consisting of identifying variances and explaining the proposed corrective action.

As projects get larger, the project plan grows to cover more topics. Risk management becomes increasingly important so they implement a risk management process with risk identification, qualitative analysis, quantitative analysis, risk response planning, risk tracking and monitoring. There is a formal risk response for each identified risks along with contingency plans if the risk response does not prevent the risk from affecting the project. Is Your Project in Trouble?

Organizations without enterprise-wide processes for completing projects have lower project success rates. They also have trouble getting the most important projects completed on time and within budget. Even worse, the lack of consistent project processes creates chaos in the trenches. Project managers battle each other for team members and no one manages people’s priorities and workloads.

Organizations with project failure rates above 50% have trouble surviving, particularly in tough economic times. But their efforts to improve performance often fail because they aim at the wrong problems.Why Do So Many Projects Fail?

Based on our experience with over 300 organizations, there are four keys to improving an organization’s project results.

1. The organization must control the initiation of new projects. Managers and executives can’t start a new project whenever they wish.

2. The organization must prioritize the projects so the major strategic initiatives get the resources they need.

3. The organization has to allocate resources to projects based on the priorities they have established. Without this, hundreds of “puppy projects” that produce very little benefit will use up to 40% of the organization’s project resources.

4. The organization has to use a consistent methodology for all projects that is scalable for the size and importance of the project. If not, small projects will be buried in too much paperwork. Project Failure Warning Signs

### Enterprise Project Management Protocol Implementation

Implementing the enterprise project management protocol is a major effort. Project managers, sponsors, stakeholders and team members need to receive some level of training on how to play their roles. Organizations also face the problem of “cleaning out the pipeline” of in-process projects that have not been managed according to the new protocol. Often times the best approach is to simply let these projects wash themselves through the pipeline. But all projects started after a certain date must comply with the enterprise project management protocol. How to Implement a Project Management Protocol

A major implementation issue is the sophistication of the project management processes. The temptation is to go too far and insist on more project management processes than necessary. The protocol then takes too much time and people don’t do it. When organizations and their project managers go overboard with exceedingly complex processes, they get less than 10% compliance. It is better to adopt a simple system that requires relatively little additional time from sponsors, project managers and team members. The organization should implement a bare-bones enterprise project management protocol and use it for one year. After that time their executives, project managers and everyone affected by it is better able to discuss what could be added to or deleted from the protocol. They decide what to add by comparing the value of the additions to the amount of time and money they would require. Project Management Office Types

You can learn more about implementing an enterprise project management protocol in our online project management courses. You work privately and individually with a expert project manager. You control the schedule and pace and have as many phone calls and live video conferences as you wish.  Take a look at a course in your specialty.